Moving a (paper) mountain

E-mortgage technology ready, but players must adapt

TORONTO (CBS.MW) -- The technology pieces that will allow mortgage loans to be generated and closed completely electronically are pretty much in place. But getting the myriad players in the mortgage process to adopt those tools is a daunting task.

The payoff for consumers to a seamless electronic mortgage transaction will be less paper, confusion and cost. But convincing lenders that they too will be able to save money while better serving those consumers is taking time.

"The e-mortgage offers tremendous potential to streamline the mortgage process and lower the cost of homeownership. But we're not going to be able to just flick a switch and turn it on," said Charlotte Haberaecker, managing director of e-business for secondary mortgage agency Fannie Mae.

Rules committee

Haberaecker, one of a number of mortgage industry veterans working on the complicated task of setting standards and rules for the e-mortgage, spoke at the annual convention of the Mortgage Bankers Association held here this week, the first time the event has been outside the United States.

But the ease with which people and information are crossing borders is not being matched within the mortgage industry as yet. Real estate agents, mortgage brokers, loan originators, title insurance companies, credit bureaus, employment verification services, county recorders of deeds offices and investors like Fannie Mae all must be on the same page in order to make the e-mortgage a reality.

"We're close to being able to make this happen, the full electronic mortgage environment," said D. Brent Israelsen, chief executive officer of Ilumin Corp., a technology provider to the mortgage business. "We've spent a lot of 2001 building the infrastructure. I think 2002 will be the year we're really going to drive it into the production systems. Instead of three or four mortgages made electronically there will be hundreds and thousands."

One of the key pieces of the puzzle was put in place this week when the MBA and the American Bankers Association said they had entered into a partnership to create a secure infrastructure for the transmittal and signing of loan documents over the Internet. The two groups will develop measures that will ensure financial transactions are private and protected through anonymous electronic signatures and that there are processes for authenticating identity, validation for a binding contract and encryption.

"Our vision is that there is a better way ... than the process that is cumbersome and laden with paper," said Robert Couch, chairman of the MBA's technology steering committee. "It will start out at the point where you apply for a mortgage and goes through the process of underwriting right down to the filing of documents. It's a complex continuum, but it can be broken down into bite-sized pieces."

As part of the MBA-ABA agreement, the TrustID digital certificate from Digital Signature Trust will become the mortgage industry standard. To demonstrate the effectiveness of the standard, the MBA and Digital Signature, a unit of Zions Bancorporation
ZION, -2.81%
signed their deal online at the convention using digital keys.

"This sets the groundwork for disseminating (e-mortgage) technology to our members and ultimately to the consumer," Couch said.

Proof of savings?

Lenders, though, will have to be convinced that there are significant cost and time savings if they are to adopt the technology. And while most of those in the industry believe significant cost reductions are possible, they say pinning down just how much the savings will be is difficult.

"You have to look at what it costs for a lender to acquire a customer, what it costs if they lose that customer. Every lender is going to be different," said Sandy MacDougal, a vice president with MicroGeneral Corp., which provides a number of technology services and products to the mortgage business.

"But at the end of the day, the potential benefit (of a seamless electronic mortgage) should be lower interest rates to consumers," he said.

Getting away from all that paper won't be easy, said Tim Walsh, business development director for eOriginal, a Baltimore software company. Even with everything in place for an electronic loan, buyers today still have the option of changing their minds at the closing table, necessitating paper backup anyway.

"There's no question a lot of paper is the bane of the industry."
Tim Walsh,eOriginal

"There's no question a lot of paper is the bane of the industry. But you have to remember that the e-sign law (the federal law permitting digital signatures) has only been around about a year. So the opportunity for this revolution has only been around a year too," he said.

Israelsen, for one, thinks as much as 50 percent of all mortgages will be closed electronically by the end of 2005.

"We've pretty much walked through and dealt with the issues of legality, privacy, security and authentication. There's nothing out there that prevents these transactions," he said. "Some obstacles may slow it down, but there's nothing now we can't get around."

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